Office of Management and Budget Director Jacob Lew is optimistic Congress will not shut down the government when the current continuing resolution ends Nov. 18.

But he was non-committal about whether the administration would freeze federal pay for another year.

“We haven’t made decision yet. We haven’t made recommendations to the President yet about any major decisions in the budget,” Lew said Thursday during a discussion sponsored by Politico in Washington. “We are in the season where we are getting close but not at decision points. I’m in the relatively easy position of saying ‘I don’t know.’ We are looking at options across the government at policies so nothing is decided on a specific basis.” Budget director Jacob Lew Lew, who touched on several topics during the discussion, repeated the administration’s praise for federal workers, saying they shouldn’t be treated as being part of the problem.

“I think it’s really important that federal workers think they are not being singled out,” Lew said. “I, personally, and I know the President, has the highest regard for the work federal workers do. I think sometimes it’s misunderstood as a vote of no confidence in federal workers as opposed to a budgetary necessity.”

Lew did offer some good news for agencies. He said he’s not concerned about a potential government shutdown later this month.

“There is absolutely no reason that we should [have a shutdown] ,” he said. “What we’ve seen over the last six months is Congress has some choices to make. If it chooses to find reasonable middle course and we can reach agreement, Congress can pass and bill and the President will sign it. It’s encouraging that Congress is now passing appropriations bills. They seem to be trying to break them in to pieces they can manage.”

But Lew said in the same breath, there also is a risk.

“There is a risk that there is a relatively small group of members with an inordinate amount of influence that pulls the Republican party to an extreme position,” he said. “There’s no doubt this could become another one of those ideological head-to-head conflicts. It shouldn’t and it needn’t be.”

2012 spending roadmap

Lew sent a letter to lawmakers in October detailing a “roadmap” forward for 2012 spending. He said the letter is a good starting point, and makes clear what the President would accept and what he would veto in terms of cuts.

“We gave the kind of guidance Congress needs,” Lew said. “Congress has a choice, it can do business in a way that looks for how do we put together bills in the top line we agreed to, not try to renegotiate the deals from April or August, keep the commitments that were made and do it in a way that doesn’t bring these harsh ideological issues, which frankly are more appropriate campaign for a political than working out annual funding bills, into the debate.”

Congress is going down the path of bunching three or four bills into a mini-bus. The Senate recently passed such a mini-bus, which included spending bills for the Agriculture Department, Commerce, Justice, State, Transportation, the Department of Housing and Urban Development and related agencies. The House is voting today to move into a conference committee to work with the Senate to resolve their differences.

Lew said the mini-bus approach is better than the large omnibus bills that include all agencies because it gives members time to understand what they are voting for.

“I did not believe we were on the edge of shutdown in September when there was a bit of dustup over emergency funding,” he said. “I thought Congress pretty clearly indicated it wanted to avoid that and we were able to work together to avoid that. I genuinely don’t believe Congress wants to be in that kind of showdown. I’m optimistic they will work through these issues and make the right choice. It’s kind of a funny irony to this, you get to the place that you need to get to eventually, but do you do it in a way that has self-inflicted wounds along the way or not?”

No matter when Congress does pass the 2012 budget and when OMB finalizes its 2013 request, agencies should expect less.

But Lew said this is an opportunity for them.

“I think you make better decisions when you are allocating scarce resources with knowledge that it’s very important to put money in the right place,” he said. “We are in the middle of a strategy review with the Pentagon where we are asking the kinds of questions we should ask even if we didn’t have caps on spending. What are we trying to accomplish? What are our goals? What is indispensible? What is the nice to have, not the need to have? What capabilities do we need to have? We need to do it on the domestic side as well. That does mean that there will be things we will do less of. It is a tough message.”

He said agencies seem to understand there are limits to spending based on their 2013 requests, which OMB is reviewing now.

OMB plans to send budget guidance to agencies Nov. 28, known as passback.